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Probate Blunders #10 Improperly Funding Your Trust

Improperly Funding Your Trust

Probate Blunders #10 Improperly Funding Your Trust

Properly allocating resources to your estate planning entity is a crucial step in the estate planning process. Without proper allocation, your estate planning entity may not achieve its intended purpose, leaving your assets vulnerable to probate or other legal issues. In this article, we’ll explore the dangers of improperly allocating resources to your estate planning entity and why working with an estate planning attorney is important to ensure it is properly allocated.

funding a trustWhat is Estate Planning Entity Allocation?

Estate planning entity allocation refers to the process of transferring assets into an estate planning entity. When you establish such an entity, you essentially create a legal structure to own property. However, it must be properly allocated for the entity to work effectively. This means that you must transfer the ownership of your assets from yourself as an individual to your estate planning entity. For example, if you own a house, you must transfer the ownership of the house to your estate planning entity.

The Danger of Improperly Allocating Your Estate Planning Entity

The danger of improperly allocating your estate planning entity is that it can render it ineffective. If you fail to transfer ownership of your assets, your assets may still be subject to probate. This defeats the purpose of creating an estate planning entity to avoid probate and simplify the distribution of your assets after your death.

Improper allocation can also result in confusion and conflict among your beneficiaries. If you have multiple heirs, they may each have different ideas about what assets they are entitled to receive. If you haven’t properly allocated your estate planning entity, it can be difficult for them to determine who should receive what. This can lead to legal battles and family disputes.

Common Mistakes in Allocating an Estate Planning Entity

There are several common mistakes that people make when allocating their estate planning entities:

Failing to transfer ownership of assets is the most common mistake. It’s important to remember that your estate planning entity can only control assets that it owns. If you haven’t transferred ownership, it won’t be included in its assets. Failing to properly title assets: Some assets, such as bank accounts, can be titled differently. If you want the asset to be included, it must be titled in the name of the estate planning entity. For example, if your entity is named “The Smith Family Entity,” your bank account should be titled “The Smith Family Entity” rather than just your individual name. Failing to update beneficiary designations: Some assets, such as life insurance policies and retirement accounts, allow you to name beneficiaries. If you haven’t updated these beneficiary designations to name your entity as the beneficiary, the assets may not be included. Failing to properly document the transfer of assets: It’s important to document the transfer of assets from yourself to your entity. This includes creating a bill of sale for real estate and updating the vehicle title.

Example 1: John created an estate planning entity several years ago but never allocated it. He passed away recently, leaving behind a sizeable estate. His heirs were surprised to learn that they would have to go through probate, even though John had an estate planning entity. It turns out that John never transferred ownership of his assets to the entity, rendering it ineffective.

Example 2: Mary created an estate planning entity and transferred ownership of her home to it. However, she forgot to update her car’s title and forgot to transfer her bank accounts. After her passing, her heirs were left with a complicated and time-consuming process of tracking down all of her assets and determining how they should be distributed.

Example 3: Tom and Sarah created an estate planning entity and properly transferred ownership of their assets to it. However, they failed to update the beneficiary designations on their life insurance policies. After Tom passed away, Sarah was shocked to learn that the life insurance proceeds would be paid directly to Tom’s ex-wife, who was still named as the beneficiary on the policy. Sarah was left with limited financial resources and forced to dip into the assets she had transferred to the entity to pay for expenses.

In this example, Tom and Sarah’s failure to update their beneficiary designations resulted in a significant financial loss for Sarah. This demonstrates the importance of regularly reviewing and updating all estate planning documents, including beneficiary designations.

Ways to Properly Allocate Your Estate Planning Entity

proper funding of trustHere are some ways to properly allocate your estate planning entity:

Transfer ownership of assets:

This involves re-titling your assets in the name of your estate planning entity. This includes real estate, bank accounts, investments, and personal property.

Update beneficiary designations:

Some assets, like life insurance policies and retirement accounts, have beneficiary designations. Updating the beneficiary designation to name your entity as the beneficiary is an essential step in proper allocation.

Use a pour-over will:

A pour-over will is a document that transfers any assets that were not transferred to the entity during your lifetime to the entity at your death.

Assign ownership of assets: This is particularly important for business assets or assets that cannot be retitled, like intellectual property.

Examples of Improper Allocation

Here are some examples of improper allocation:

Example 1: John created an estate planning entity to hold his assets but never transferred ownership of his vacation home to it. When John passed away, the vacation home was not included in the entity and was subject to probate.

Example 2: Mary updated her beneficiary designations on her life insurance policies and retirement accounts but forgot to name her entity as the beneficiary. As a result, the proceeds of those accounts were distributed outside of the entity, and Mary’s estate was subject to probate.

Example 3: Tom assigned ownership of his business to his entity but never signed the proper paperwork to transfer ownership of his vehicles. After Tom died, his heirs fought over who should receive the vehicles.

Conclusion

In conclusion, properly allocating resources to your estate planning entity is an essential step in the estate planning process. Improper allocation can lead to assets being subject to probate, confusion among beneficiaries, and other legal issues. By working with an experienced estate planning attorney, you can ensure that your estate planning entity is properly allocated and that your wishes are fulfilled after your passing.

Properly allocating resources to your estate planning entity is essential to achieving your estate planning goals. Without proper allocation, your entity may not work as intended, and your assets may be subject to probate or other legal issues. To ensure that your entity is properly allocated, working with an estate planning attorney who can help you identify all of your assets and determine the best way to transfer ownership to your entity is important.

In addition to helping you allocate your entity, an attorney can help you create other important estate planning documents, such as a will and power of attorney. They can also help you plan for incapacity and ensure that your wishes are carried out in the event that you become unable to make decisions for yourself.

Remember, estate planning is not a one-time event. It’s important to regularly review and update your estate planning documents to ensure that they continue to meet your needs and goals. By working with an experienced estate planning attorney, you can protect your assets, minimize taxes, and ensure that your final wishes are carried out according to your wishes.

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